The Africa Boom

I contributed the following article to Dr Marc Faber’s Gloom, Boom, and Doom report in January 2014. It was an updated version of the argument my colleagues and I at ETM Analytics had been making to clients since around 2012. It was a warning to be careful of a coming bust in African economies and markets.

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Email me for the password. (The duplication of chart 2 & 3 in the report was the editor’s error).

At around the same time (December 2012), The Economist ran its Africa Rising cover;

And Renaissance Capital analysts published The Fastest Billion (November 2012).

If one invested in this Africa rising view in November 2012 by adding money to the Market Vectors Africa ETF, you’d  have wiped out 30% of your capital in USD. The exuberance had become a little irrational. If you bought in late 2012 and managed to sell at the 2014 peak you could have picked up at most 9% in USD.


The time you should have been buying Africa was back in 2000 (when Jim Rogers said the time was right in his book: “Adventure Capitalist”). Africa was an option on a developing commodity boom. Such a buying time will come again, but my sense is we’re not there yet. There are some opportunities across the continent, but they are few and far between.

On the decline of Joburg and SA

Here’s an except of an interesting article by Victor Davis Hanson titled The Destiny of Cities. In reading his discussion of the events that drove the decline of former great cities like Pompeii or Florence, and events that could lead to the same decline of New York today, it’s clear to me that these factors–capital flight and overly redistributive taxes–are already happening in Johannesburg, and Cape Town is clearly benefiting from this trend. When you look at South Africa as a whole, other major cities like London, New York and Hong Kong are benefiting from what’s going on in South Africa.

What could actually end New York, at least as we know it, is commercial failure. The chief danger would be a massive flight of capital, the sort of fate that doomed Renaissance Florence as a banking center. By the seventeenth century, the riches of the New World, Europe’s bustling Atlantic seaports, and Florence’s internecine tribal feuding finally made irrelevant the Medicis’ traditional role as the financial hub facilitating eastern Mediterranean commerce with Asia’s overland spice and silk routes. When Florence’s commercial income ran out and its bankers left, the Florentine cultural renaissance ended. By the eighteenth-century age of the franc, guilder, peso, and pound, it was hard to remember that between 1300 and 1500, the florin had been Europe’s benchmark gold coin.

Examples abound of capital fleeing cities and taking culture with it. Long before the Reconquista drove Islam out of Iberia, eleventh-century Muslim Córdoba—increasingly ill-governed and burdened with court intrigue—tired of its allegiance to free thought, no longer welcomed freewheeling commerce, and became an intolerant Islamic backwater where books were burned rather than produced. Timbuktu, a sixteenth-century crossroads between northern and western Africa, declined as a center for learning after slave traffic and the gold and salt trade routes shifted. Money drives art and culture, and without the ongoing creation of prosperity, higher pursuits die on the vine.

If New York’s financial class fears that New York is becoming a completely redistributive city, it will likewise begin to leave. Already, the combined state and city income-tax rate is 12.62 percent for the highest earners, and in 2011, if Congress adopts President Obama’s tax policies, the combined federal, state, and local tax bite on each added dollar of income for those earners will exceed 50 percent for the first time in 25 years (see “Empire of Excess,” Winter 2010). New York’s increasingly confiscatory and redistributive policies, then, could drive capital to lower-tax southern or midwestern states eager to have it. There is nothing to prevent Charlotte from taking over New York’s preeminent banking role, or Dallas–Fort Worth—America’s fastest-growing urban center—from becoming the nation’s corporate capital. Atlanta, Denver, and Seattle could just as easily divide up much of New York’s cultural leadership.

Capitalists might also flee America’s climbing tax rates and regulations and re-create New York abroad by outsourcing its financial disciplines to Frankfurt, Zurich, Tokyo, Shanghai, and Singapore. The resulting impoverishment back home, in which spiraling municipal deficits would lead to calls for higher taxes on the fewer remaining high-income earners, would leave New York’s current attractions—musical performances, literature, theater, museums, foundations, and universities—without the high-octane financial fuel that propels them.

Africa Eurobonds collapsing

It’s been quiet here on the blog, but as quiet as it’s been here I’ve been busy at work. I’ll try pick things up a little on the blog, but keep to twitter-length posts.

African Eurobonds are taking an absolute beating at the moment and the proximate cause of this collapse seems to be the oil price collapse where the Brent crude price has nearly halved in the last few months.


My thoughts on the –at the time, still coming– Africa Eurobond collapse are outlined in this report I sent to African Alliance clients on October 15, 2014.

Cape Town, Nairobi, London, and NY in next two months

I’ve hit the ground running here at African Alliance and published five macro & equity strategy reports in the past month. As a result the blog just hasn’t been a priority. I’m getting material together for upcoming roadshows to Cape Town, Nairobi, London and NY in the next two months. Our team has developed some good views , and we’ll be making some more big calls in the next few weeks as well. If you’re in any of these cities and would be keen to meet up for a drink or meeting, get in touch.

Market Starting to Question Sustainability of African Debt Boom

For a long time I’ve been warning about the many signs that the African debt boom, which is helping to fuel the consumer boom on the continent, looks unsustainable and will end with a major bust down the road. I don’t think we’re at the the final bursting point yet as there’s most likely more QE on the way from the US Fed next year, while the Chinese central bank is starting to crank things up again as well. The combination should continue to fuel African debt issuance and growth, for another few years at least. That said, it’s interesting to note mainstream press starting to question the sustainability of this African debt boom. For example, see “African spending spree faces punishment by markets,” published by Reuters last week.

Speaking at Mines & Money Conference in June 2014

I’m excited to announce that I’ve accepted an invitation to speak at the Mines and Money Access Africa conference to be held in Mauritius on June 24 and 25, 2014. It’s a conference aimed at miners and funds investing in mines in Africa. The speaker list is formidable and so is the delegate list. Anyone with mining interests in Africa, or looking to establish those, should find the event of interest. My profile for the event is here and more details of the event and what it offers can be found here.